Wood Fiber Costs Decline with Falling Pulp Prices
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As Wood Resource Quarterly (WRQ), Seattle, Wash., USA, explains, global pulp prices fell by about 20% from July to December of last year. Weakening demand for pulp and lower product prices squeezed pulp company profit margins such that many companies tried to reduce their costs for wood fiber, which represents the largest cost component when manufacturing pulp.
There has been a long-term trend in the pulp industry of wood costs increasing as a percentage of the total production costs, WRQ notes. In the third quarter of 2011, this share had reached 63.5% on a worldwide basis, up from only 53% in 2005, according to Fisher International. However, this share can vary substantially, from a current low of 52% in Eastern Canada to as high as 73% in China, WRQ adds. For this reason, tracking wood fiber prices over time has become more important when comparing competitiveness of different regions worldwide.
In the fourth quarter of 2011, the U.S. dollar continued to strengthen against local currencies of all of the countries covered by WRQ, except Japan. This development, together with the downward price pressure on pulp log and wood chips in local currencies in practically all of the 18 regions in the world covered by WRQ, resulted in a decline of both global wood fiber indices.
The Softwood Wood Fiber Price Index fell for the second straight quarter to $105.30 per oven-dry tons (odmt) in the fourth quarter of 2011. This was down 3.3% from the previous quarter, but 1.6% higher than the fourth quarter of 2010. The biggest price declines took place in Western Canada, Brazil, Spain, Germany, and Finland, WRQ said. .
The Hardwood Wood Fiber Price Index fell by 3.6% from the third quarter of 2011 to $113.69/odmt. Despite this drop, this was still 5.0% higher than during the fourth quarter of 2010 and the third highest level ever recorded. The biggest third and fourth quarter price reductions occurred in Spain, Finland, Brazil, and Chile.
Wood fiber costs are likely to continue downward in a number of markets in the first quarter of this year, particularly in the Nordic countries, Western Canada, and the U.S., as pulp prices continue to be substantially below the record-high levels from last summer, according to WRQ.
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